5 Tips for Better Debt Management
Managing debts is hard and intimidating and these tips are there to help you solve your financial issues and get back on the right track.
1. Owning Up To Your Mistakes
If you’ve been trying to make your bills go away by throwing them in some drawer or hiding them under the carpet without opening them, the first step for you is to face the music. Find a comfortable place you can sit and get your budget, bills and loan statements – basically every document you have in your possession that is related to your finances. The next step is doing the math.
The bills for essentials (water, heat, power, for instance) and your credit/loan payments will make up the base payments. If the total amount already exceeds your net earnings, you will either have to adjust your lifestyle in a major way (look for another job, get a smaller house, or sell your existing house) or file for bankruptcy. Alternatively, there are certain steps you can take, depending on your unique circumstances, but you will need to come up with a solid plan on how to manage your debt.
2. The Tough Journey of Paying Back
Each debt/loan is different from the other. When coming up with a plan, you’ll have to rank your debts according to priority and urgency, and then come up with a plan for repayment. Professionals advise starting with the loans with the highest interest rates first; then low-interest, non-deductible loans, and finally tax-deductible loans. And, talking of high-interest loans, it’s high time you stop taking them!
Have a single line of credit for emergencies, and stop keeping other lines of credit open in the future. Essentially, you should strive to save up some cash for emergencies instead of relying on credit cards and loans. Your goal should be to stick to cash only to avoid accruing more debt.
3. Request Your Credit Report
The next step is to get your credit report and check it for patterns of bad behavior or inaccuracies in spending. You can request your credit report the same way banks do – from either of the approved credit bureaus that track consumer credit – TransUnion, Equifax, and Experian.
Begin by analyzing your credit report and understanding your credit score, which is fairly easy for anyone to do. Credit bureaus allow you to request one credit report for free each year. There are also freed credit check services, but these may not be entirely “free” because you may end up subscribing for a credit monitoring services that charges you on a monthly basis if you’re not careful.
After getting the report, note the accounts that are pulling your rating down and check where the amounts are accurate. It only takes a few late payments to move a debt from a green rating to a red. If you have a lot of credit card debts, you may be put in the “high-risk” category, despite doing your best to make repayments on a monthly basis. This may sound unfair, but lenders can afford to be strict because they have plenty of customers looking for loans.
4. Begin Damage Control
Pay down your loans on time and eliminate any troublesome accounts. Tighten up your budget and use automatic payments to reduce your loan obligations. This will prevent your credit score from getting worse, and over time, will boost it. If your credit score allow for it, you can opt for a bigger, lower-interest loan that you can use to consolidate all your individual debts into one single loan. This will help make the process of paying back your debt much quicker and easier in the long run.
If you still have a fairly good credit rating, you may be eligible for a balance transfer service from one of your credit cards. Such services enable you to pay off your loans quicker by shifting high-interest loans onto a credit card that offers a grace period of anywhere from 6 to 18 months and a 0% annual percentage rate (APR) depending on the lenders.
The cost of this transaction is usually a flat fee or a service charge that is dependent on the percentage of the amount you wish to transfer. It’s important to remember that if you don’t settle your debt by the time the grace period is over, you’ll immediately be put in the “high-risk” category that exposes you to high interest rates and the possibility of a Texas collections lawyer coming after you.
Credit Lines
If you have a credit line, like a home-equity loan, you may also be able to use it to settle high-interest loans. Credit lines have annual percentage rates in the 3 to 7 percent range, while credit card rates typically fall in the 20 percent range.
It’s worth noting that employing this strategy means that you have to carefully manage your spending habits. Using credit lines to live beyond your means is not a very smart idea.
While it may seem prudent to terminate some of your credit cards so that you’re not tempted to use them, put them away instead, because doing so may end up damaging your credit rating.
5. Make Double Payments
If you can use two shovels to dig yourself out of your problems, why not do it. Making double payments on high-interest loans is highly recommended because it reduces the repayment period. Once you have done away with your high-interest loans, move to the next most expensive debt you have. This is commonly referred to as a “debt avalanche”.
If you still have issues or can’t deal with your debt then a debt management plan may be a good idea. If you don’t know what that is then take a look at this piece – what is a debt management plan.
This article will hopefully help you get out of debt and solve your financial stresses.
